Nissan, the second-biggest car maker in Japan has reported a sharp decline in its third quarter profit due to slump in China sales as well as weaker demand for its vehicles in the US and European markets.

Net income tumbled 54.1bn yen ($583m, £371m) in the three months through December, a 35 percent fall compared to the same period, a year ago. Analysts have estimated 59.7bn yen for the third quarter.

However, the Yokohama, Japan-based company held its full-year earnings outlook unchanged at 340bn yen.

Sales in China have been hit hard by protests over the territorial dispute between Japan and China which more than offset the benefits of yen depreciation for the company.

Nissan's sales in China slumped over 30 percent in the final three months of last year. China is the biggest market for Nissan as it sells one in four of its vehicles in the world's largest vehicle market.

"Nissan's performance in the third quarter did not meet our expectations. Looking forward, we have important vehicle launches. We anticipate further yen correction," said Carlos Ghosn, chief executive of Nissan Motors in a statement.

In other major markets such as the US and the Europe, Nissan's vehicles trailed behind products of rivals such as Toyota and Honda.

Sales in Europe fell 2.4 percent to 678,697 vehicles in 2012.

Toyota had recently raised its profit forecast to 10 percent while it expected operating income and revenue to climb 9.5 percent and 2.3 percent respectively.

Nissan shares fell 0.6 percent to close at 987 yen in Nikkei before the earnings announcement.